India’s largest integrated power company Tata Power has sold its stake in two group companies to cut its mounting debt burden. The company has said its board has approved the sale of its shares in Tata Communications and Panatone Finvest to Tata Sons and its affiliates.
“The estimated realisation will be about Rs. 2150 crores and is subject to shareholders’ approval”, said an official announcement. The company has cross-holdings at the group level. It holds stakes in seven group companies, including Nelco, Tata Communications, and Voltas, besides an unlisted Tata Teleservices. Panatone Finvest holds 30.1% of Tata Communications.
The move is a part of the company’s plan to monetize its non-core assets and improve balance sheet to set the stage for the next phase of growth, stated the company.
As of the second quarter of FY 2018, Tata Power had a consolidated debt burden of Rs 48,982 crore, mainly accrued from huge investments made into a bleeding 4150 megawatt Mundra ultra-mega power project and a Rs 10,000 crore acquisition of Welspun’s renewable energy portfolio about two years ago.
Tata Power spent nearly Rs 18,000 crore to construct the subsidiary Coastal Gujarat Power Limited (CGPL) at Mundra in Gujarat, including Rs 6,200 crore equity and the rest as loans, mainly from Asian Development Bank (ADB) and IFC. The interest burden on Mundra started from 2013 onwards and the company has to pay over Rs 1,000 crore as interest annually.
But its plans backfired as Indonesia changed its coal policy in 2012 to favour domestic coal companies which made the imported coal based power plant unviable.
CGPL is straining the balance sheet of Tata Power. CGPL had an operating income of Rs 6,112 crore in FY17 and Rs 5,908 crore in FY16, but net losses were Rs 849 crore and Rs 999 crore respectively. For the second quarter of FY18, CGPL had a net loss of Rs 279 crore and an incremental EBITDA loss of Rs 166 crore.
A few months ago, Tata Power’s Managing Director and CEO Anil Sardana, a long term Tata loyalist, had resigned. Praveer Sinha, currently working as as the CEO & Managing Director of Tata Power Delhi Distribution Ltd (Tata Power-DDL), will take over as the new Chief Executive Officer and Managing Director with effect from May 1, 2018.